CORPORATE EIB Project Carbon Footprint Methodologies

Transcription

1 CORPORATE EIB Project Carbon Footprint Methodologies Methodologies for the Assessment of Project GHG Emissions and Emission Variations

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3 EIB Project Carbon Footprint Methodologies Methodologies for the Assessment of Project GHG Emissions and Emission Variations Version 11 December 2018

4 CAVEAT A number of caveats should be stressed from the outset. First, carbon emissions result from virtually all human and natural activities. For example, even when the best available technologies are used when making cement, paper or steel, inevitably a significant quantity of CO2 is emitted. The carbon footprint measures GHG emissions. However, evaluating the merit of a project requires comparing economic costs with benefits, including the costs and benefits in terms of incremental GHG emissions. Where appropriate, the Bank uses an economic (shadow price) of carbon to convert changes in tonnes of GHG into euros. In short, whilst the carbon footprint is an important metric in its own right, it should be seen within the context of the overall economic appraisal of a project. Second, the recommended methodologies are by assumption restricted in scope. The carbon footprint does not purport to be a comprehensive life-cycle analysis of a project. Such an exercise can only be done credibly ex-post and with a large amount of information. The carbon footprint takes place ex-ante and with limited information and resources. For instance, downstream emissions from the use of the products and services resulting from EIB-financed investment projects are generally not considered. Examples are R&D projects in the area of efficient engines, a project to build a PV panel or wind turbine factory, and a bio-ethanol refinery project. In summary, in considering the scope and nature of the EIB carbon footprinting methodology, readers should be mindful that the carbon footprint of a project per se cannot and should not be construed as an expression of the merit or value of that project, either broadly or more narrowly in climate change terms alone. Finally, the EIB carbon footprint methodology is still considered work in progress that is subject to periodic review and revision in the light of experience gained and as knowledge of climate change issues evolves. The EIB s Projects Directorate (PJ) welcomes comments and suggestions for improvement on the latest draft of the present document.

5 REVISION HISTORY Revision No. Issue Date Amendment Description Version 1 10 July 2009 First version issued following consultations on two draft editions. v2 10 Sept 2009 Revisions to incorporated changes following internal review v3 24 Sept 2009 Revisions to incorporated changes following launch of methodologies v4 22 Oct 2009 Revisions following implementation of methodologies v5 10 Nov 2009 Revisions to included amended baseline methodologies v6 23 Nov 2009 Revisions following internal review v7 24 Feb 2010 Revisions following internal review v8 15 July 2010 Revision following internal review and comments v Sept 2010 Revision following internal review and comments v9.2 Q Holding version after preliminary review by the Carbon Footprint Task Force. Issued before CSO Workshop v10 Q Revision following feedback from PJ CFTF 1, CSOs, MDB Working Group and the completion of the 3 year Pilot. v10.1 Q Table A1.3 updated with IEA data for 3-year average, v10.2 (internal) Q Revisions following CO2logic review of v10 and KPMG audit of CFE 2013 v10.3 (internal) Q Table A1.3 updated with IEA data for 3-year average ( ) v10.4 (internal) Q Improved clarification of absolute and relative boundaries, updated table A1.3 v11 Q Revision of threshold for absolute emissions Included methodologies for ports, airports and forestry Improved definition of scopes and boundaries Updated emission factors Alignment with IFI GHG Harmonised Methodologies 1 The Carbon Footprint Task Force group made up of a minimum of several experts from each Department in the EIB s Project Directorate tasked with reviewing sector methodologies.

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7 Contents 1. INTRODUCTION BACKGROUND OBJECTIVE GUIDING PRINCIPLES SIGNIFICANT EMISSIONS GREENHOUSE GASES INCLUDED IN THE CARBON FOOTPRINT PROJECT BOUNDARIES (SEE FIGURE 1A/B) METRICS EMISSIONS FACTORS ABSOLUTE EMISSIONS (AB): BASELINE EMISSIONS (BE): RELATIVE EMISSIONS (RE) QUANTIFICATION PROCESS AND METHODOLOGIES THE ASSESSMENT OF INTERMEDIATED PROJECTS ANNEX 1: DEFAULT EMISSIONS CALCULATION METHODOLOGIES ANNEX 2: APPLICATION OF ELECTICITY GRID EMISSION FACTORS FOR PROJECT BASELINES ANNEX 3: FORESTRY CARBON FOOTPRINT CALCULATION METHODOLOGY ANNEX 4: PORTS AND AIRPORTS CARBON FOOTPRINT CALCULATION METHODOLOGY GLOSSARY... 56

8 1. Introduction This document contains the carbon footprinting methodology of the EIB. It provides guidance to EIB staff on how to calculate the carbon footprint of the investment projects financed by the EIB. The document also presents how the EIB calculates the carbon footprint of its investment projects to its auditors, external stakeholders and other interested parties. The methodology is used to calculate the carbon footprint of the investment projects financed by the EIB. These carbon footprints are published on the project s Environmental and Social Data Sheet (ESDS). The EIB also publishes the aggregated results annually as part of its Carbon Footprint Exercise (CFE) in the EIB Group s Sustainability Report. Whilst project carbon footprinting is mainstreamed into the Bank s operations, it remains under regular review. The Bank works closely with other financial institutions and stakeholders in its footprinting work and welcomes further feedback on the methodology. The EIB s methodology is in line with the International Financial Institution Framework for a Harmonised Approach to Greenhouse Gas Accounting, published in November The methodologies presented here are for project carbon footprinting and should not be confused with the internal carbon footprint of the EIB Group s travel and buildings, which is reported separately. In addition, the carbon footprinting methodology should not be confused with the EIB s Climate Action eligibility list, which can be found separately on the EIB s website. 2. Background Most of the projects financed by the EIB emit greenhouse gases (GHG) into the atmosphere either directly (e.g. fuel combustion or production process emissions) or indirectly through purchased electricity and/or heat. In addition, many projects result in emission reductions or increases when compared to what would have happened in the absence of the project, referred to as baseline emissions. The Bank carried out a 3-year pilot phase from to measure the impact in GHG emissions from the investment projects it finances 2. This document sets out the methodologies to be applied going forward. The methodologies allow for the estimation of two measures of GHGs from investment projects financed by the Bank: the absolute GHG emissions or sequestration of the project, and; the emissions variation of the project i.e. the relative GHG emissions of the project, which is the difference in emissions between the with and the without project scenarios. Relative emissions can be either positive or negative, based on whether there is an increase or decrease in emissions. The methodologies set out below are based upon the internationally recognised IPCC Guidelines, the WRI GHG Protocol and the IFI s Harmonised Approach to GHG Accounting. In the absence of project specific factors, the methodologies adopt an IPCC factor applicable at the global or trans-national level (termed tier level 1 in IPCC). The development of the methodologies has also been informed by ISO14064 parts 1 and 2 and the Verified Carbon Standard which provide guidelines for the development of greenhouse gas inventories at the corporate and project levels. 2 The EIB Carbon Footprint Exercise includes direct Investment Loans and large Framework Loan allocations that meet the significant emissions thresholds defined in section 5. Other intermediated lending is not currently included due to the limited information available to carry out a useful calculation for numerous sub-projects. Page 6 of 56

9 3. Objective The EIB calculates and reports the carbon footprint of the projects it finances to provide transparency on the GHG emissions footprint of its financing activities. The GHG footprint of individual investment projects are reported on the project s Environmental and Social Data Sheet (ESDS). Aggregated results are reported as part of the annual Carbon Footprint Exercise (CFE) in the EIB Group s Sustainability Report. 4. Guiding principles Certain principles underpin the estimation of project-based absolute and relative GHG emissions. These principles should guide users in cases where the proposed EIB methodologies afford flexibility or discretion, or where a particular situation requires the application of a case specific factor. The application of these principles will help ensure the credibility and consistency of efforts to quantify and report emissions. These principles are: Completeness All relevant information should be included in the quantification of a project s GHG emissions and in the aggregation to the total EIB-induced GHG footprint. This is to ensure that there are no material omissions from the data and information that would substantively influence the assessments and decisions of the users of the emissions data and information. Consistency The credible quantification of GHG emissions requires that methods and procedures are always applied to a project and its components in the same manner, that the same criteria and assumptions are used to evaluate significance and relevance, and that any data collected and reported allow meaningful comparisons over time. Transparency GHG emissions are assessed for individual investment projects with significant emissions at appraisal and reported in the project s Environmental and Social Data Sheet (ESDS), which is published on the EIB website on the public register, when either the absolute or relative threshold of 20,000 tonnes CO2e emissions/year is exceeded. The relative threshold applies to both positive and negative relative emissions, therefore the threshold is +/- 20,000 tonnes CO2e emissions/per year. For the purposes of annual reporting the project figures are prorated in proportion to the EIB funding for the project, i.e. financed contract amounts, signed in that year compared to its total investment costs. Thus, if the EIB signs a contract for 25% of a project in a particular year, 25% of the project emissions will be reported in that year. Further contracts may be signed for the same project in subsequent years, and will be accounted for separately in the respective year, again using a prorated approach based on the finance contract amount in that year, ensuring that there is no double counting of the impact of a project. Clear and sufficient information should be available to allow for assessment of the credibility and reliability of reported GHG emissions. Specific exclusions or inclusions should be clearly identified and assumptions should be explained. Appropriate references should be provided for both data and assumptions. Information relating to the project boundary, the explanation of baseline choice, and the estimation of baseline emissions should be sufficient to replicate results and understand the conclusions drawn. Conservativeness EIB should use conservative assumptions, values, and procedures. Conservative values and assumptions are those that are more likely to overestimate absolute emissions and positive relative emissions (net increases), and underestimate negative relative emissions (net reductions). Page 7 of 56

10 Balance Objective threshold values are used to determine which investment projects are included in the portfolio carbon footprint. This includes investment projects with positive as well as negative impacts. Accuracy Carbon footprinting involves many forms of uncertainty, including uncertainty about the identification of secondary effects, the identification of baseline scenarios and baseline emission estimates. Therefore, GHG estimates are in principle approximate. Uncertainties with respect to GHG estimates or calculations should be reduced as far as is practical, and estimation methods should avoid bias. Where accuracy is reduced, the data and assumptions used to quantify GHG emissions should be conservative. Relevance Select the GHG sources, GHG sinks, GHG reservoirs, data and methodologies appropriate to the needs of the intended user. 5. Significant emissions Not all investment projects need to be included in the GHG footprint and only investment projects with significant emissions are to be assessed. Based on the results of the GHG footprint pilot, it was decided to set minimum project thresholds for inclusion in the GHG footprint at 100,000 tonnes CO2e per year for absolute emissions and 20,000 tonnes CO2e per year (positive or negative) for relative emissions. Investment projects are included if either one of the thresholds is met. When included, both absolute and relative emissions need to be calculated and reported. The coverage of these thresholds was reassessed in 2018 and the threshold for absolute emissions was lowered to guarantee the desired level of coverage for the EIB. It was clarified that the thresholds are positive as well as negative for both absolute as well as relative emissions. The thresholds are as follows: Absolute emissions greater than 20,000 tonnes CO2e/year (positive or negative) Relative emissions greater than 20,000 tonnes CO2e/year (positive or negative) Research indicates that they capture approximately 95% of the absolute and relative GHG emissions from projects. Investment projects with absolute and relative emissions below these thresholds are not included in the footprint since they are not considered significant. Table 1 below illustrates the project types that may be included in the calculation of the GHG footprint. This list and categorisation is for guidance only. Project teams may use a quantitative assessment, expert knowledge based on previous projects or other published sources to determine if a project is likely to be above or below the threshold. Where there is uncertainty, then the full carbon footprint calculation should be undertaken to assess whether the project should be included in the carbon footprint exercise. The EIB reports 100% of a project s emissions even if the Bank is only contributing a portion of the total project investment cost. At the reporting stage, results are prorated to EIB s share of the financing plan. Page 8 of 56

11 Table 1: Illustrative examples of project categories for which a GHG assessment is required Telecommunications services In general, depending on the scale of the project GHG assessment WILL NOT be required Drinking water supply networks Rainwater and wastewater collection networks Small scale industrial waste water treatment and municipal waste water treatment Property developments Mechanical/biological waste treatment plants R&D activities Pharmaceuticals and biotechnology Municipal solid waste landfills Municipal waste incineration plants Large waste water treatment plants Manufacturing Industry Chemicals and refining Mining and basic metals Pulp and paper In general GHG assessment WILL be required Rolling stock, ship, transport fleet purchases Road and Rail infrastructure Power transmission lines Renewable sources of energy Fuel production, processing, storage and transportation Cement and lime production Glass production Heat and power generating plants District heating networks Natural gas liquefaction and re-gasification facilities Gas transmission infrastructure Page 9 of 56

12 6. Greenhouse gases included in the carbon footprint The greenhouse gases (GHGs) included in the footprint include the seven gases listed in the Kyoto Protocol, namely: carbon dioxide (CO2); methane (CH4); nitrous oxide (N2O); hydrofluorocarbons (HFCs); perfluorocarbons (PFCs); sulphur hexafluoride (SF6); and nitrogen trifluoride (NF3). The GHG emissions quantification process converts all GHG emissions into tonnes of carbon dioxide called CO2e (equivalent) using Global Warming Potentials (GWP), which can be found in table A1.9 in the Annex. All footprints of the EIB, absolute and relative, include these seven GHGs and are expressed in tonnes CO2e. The following processes/activities usually generate GHGs that may be accounted for using the methodologies: CO2 stationary combustion of fossil fuels, indirect use of electricity, oil/gas production & processing, flue gas desulphurisation (limestone based), aluminium production, iron and steel production, nitric acid production, ammonia production, adipic acid production, cement production, lime production, glass manufacture, municipal solid waste incineration, transport (mobile combustion) CH4 biomass combustion or decomposition, oil/gas production & processing, coal mining, municipal solid waste landfill, municipal waste water treatment N2O stationary combustion of fossil fuels/biomass, nitric acid production, adipic acid production, municipal solid waste incineration, municipal waste water treatment, transport (mobile combustion) HFCs refrigeration / air conditioning / insulation industry PFCs aluminium production SF6 electricity transmission systems, specific electronics industries (e.g. LCD display manufacture) NF3 plasma and thermal cleaning of CVD reactors Table 2: Selected examples of sources of direct GHG emissions by activity type ACTIVITY GHG Type POTENTIAL SOURCES OF EMISSION COMBUSTION FOR ENERGY COMBUSTION GAS SCRUBBERS OIL / GAS PRODUCTION, PROCESSING & REFINING IRON & STEEL PRODUCTION CEMENT & LIME MANUFACTURE CO 2 N 2O CH 4 CO 2 CO 2 N 2O CH 4 CO 2 N 2O CO 2 Energy related GHG emissions from combustion: boilers / burners / turbines / heaters / furnaces / incinerators / kilns / ovens / dryers / engines / flares / any other equipment or machinery that uses fuel, including vehicles. Process CO 2 from flue gas de-sulphurisation (limestone based) units Energy related GHG emissions from combustion: boilers / process heaters & treaters / internal combustion engines & turbines / catalytic and thermal oxidizers / coke calcining kilns / firewater pumps / emergency/standby generators / flares / incinerators / crackers. Process related GHGs from: hydrogen production installations / catalytic regeneration (from catalytic cracking and other catalytic processes) / cokers (flexi-coking, delayed coking). Fugitive losses of CH4. Coke Ovens: raw materials (coal or petrol coke) / conventional fuels (e.g. natural gas) / process gases (e.g. blast furnace gas (BFG)) / other fuels / waste gas scrubbing. Metal ore roasting, sintering or pelletisation: raw materials (calcination of limestone, dolomite and carbonatic iron ores, e.g. FeCO3) / conventional fuels (natural gas and coke/coke breeze) / process gases (e.g. coke oven gas (COG) and blast furnace gas (BFG)) / process residues used as input material including filtered dust from the sintering plant, the converter and the blast furnace / other fuels / waste gas scrubbing. Production of pig iron and steel including continuous casting: raw materials (calcination of limestone, dolomite and carbonatic iron ores, e.g. FeCO3) / conventional fuels (natural gas, coal and coke) / reducing agents (coke, coal, plastics, etc.) / process gases (coke oven gas (COG), blast furnace gas (BFG) and basic oxygen furnace gas (BOFG)) / consumption of graphite electrodes / other fuels / waste gas scrubbing. Calcination of limestone in the raw materials / conventional fossil kiln fuels / alternative fossil-based kiln fuels and raw materials / biomass kiln fuels (biomass wastes) / non-kiln fuels / organic carbon content of limestone and shales / raw materials used for waste gas scrubbing. Page 10 of 56

13 ACTIVITY GHG Type POTENTIAL SOURCES OF EMISSION GLASS PRODUCTION CO 2 PAPER & PULP MANUFACTURE ALUMINIUM PRODUCTION NITRIC ACID PRODUCTION AMMONIA PRODUCTION ADIPIC ACID PRODUCTION WASTE WATER TREATMENT MUNICIPAL SOLID WASTE INCINERATION MUNICIPAL SOLID WASTE LANDFILLS REFRIGERATION / AIR CONDITIONING / INSULATION INDUSTRY CO 2 CO 2 PFCs SF 6 CO 2 N 2O CO 2 N 2O CH 4 CO 2 N 2O CO 2 N 2O CH 4 HFCs POWER TRANSMISSION SF 6 Glass production: decomposition of alkali- and earth alkali carbonates during melting of the raw material / conventional fossil fuels / alternative fossil-based fuels and raw materials / biomass fuels (biomass wastes) / other fuels / carbon containing additives including coke and coal dust / waste gas scrubbing. Pulp and paper manufacture: power boilers, gas turbines, and other combustion devices producing steam or power for the mill / recovery boilers and other devices burning spent pulping liquors / incinerators / lime kilns and calciners / waste gas scrubbing / fossil fuel-fired dryers (such as infrared dryers). CO 2 from combustion sources. Process related GHG emissions: CO 2 from anode consumption (pre-baked or Søderberg) / CO 2 from anode and cathode baking / PFCs from anode effects (or events). Other process-related emissions that may occur, depending on the facility configuration, include: CO 2 from coke calcinations / SF6 from use as a cover gas / SF 6 from use in on-site electrical equipment. CO 2 from combustion sources and process related. CO 2 from combustion sources and process related. CO 2 from combustion sources and process related. CH 4 from degradation of organic material in the wastewater under anaerobic conditions. CO 2 emissions from the consumption of electricity in the treatment process. N 2O as an intermediate product from the degradation of nitrogen components in the wastewater. GHGs from MSW combustion. CH 4 from anaerobic digestion of biodegradable waste Fugitive losses of HFCs Transmissions losses will be derived from the power production combustion sources and have an associated emission of CO 2 Fugitive losses of SF 6 SPECIFIC ELECTRONICS INDUSTRY (SEMICONDUCTORS, LCD) PFC s NF 3 Fugitive losses of PFCs and NF 3 Page 11 of 56

14 7. Project boundaries (see figure 1a/b) The project boundary defines what is to be included in the calculation of the absolute and relative emissions. The EIB methodologies use the concept of scope based on definitions from the WRI GHG Protocol Corporate Accounting and Reporting Standard, when defining the boundary to be included in the emissions calculation. Scope 1: Direct GHG emissions. Direct GHG emissions physically occur from sources that are operated by the project. For example emissions produced by the combustion of fossil fuels, by industrial processes and by fugitive emissions, such as refrigerants or methane leakage. Scope 2: Indirect GHG emissions. Scope 2 accounts for indirect GHG emissions associated with energy consumption (electricity, heating, cooling and steam) consumed but not produced by the project. These are included because the project has direct control over energy consumption, for example by improving it with energy efficiency measures or switching to consume electricity from renewable sources. Scope 3: Other indirect GHG emissions. Scope 3 emissions are all other indirect emissions that can be considered a consequence of the activities of the project (e.g. emissions from the production or extraction of raw material or feedstock and vehicle emissions from the use of road infrastructure, including emissions from the electricity consumption of trains and electric vehicles). From the results of the pilot exercise and through working with other IFIs to harmonize approaches to carbon footprinting, it was decided that scope 1 and 2 emissions should be included in the carbon footprint. For the majority of projects financed by the Bank these are the most significant emissions associated with the projects. However, for certain sectors in which the scope 3 emissions associated with the projects are significant and can be estimated, e.g. transportation or biofuel production and bioenergy projects (as required for climate action eligibility), scope 3 emissions may be included. Setting of boundaries for absolute and relative emissions calculations For some projects, as specified in table 3, the absolute and relative emissions calculations may have different boundaries. Absolute emissions are based on a project boundary that includes all significant scope 1, scope 2 and scope 3 emissions (as applicable) that occur within the project. For example, the boundary for a stretch of motorway would be the length of motorway defined by the finance contract as the project and the calculation of absolute emissions would cover the GHG emissions of vehicles using that particular stretch of motorway in a typical year. Relative emissions are based on a project boundary that adequately covers the with and without project scenarios. It includes all significant scope 1, scope 2 and scope 3 emissions (as applicable), but it may also require a boundary outside the physical limits of the project to adequately represent the baseline. For example, without the motorway, traffic would increase on secondary roads outside the physical limits of the project. The relative emissions calculation will use a boundary that covers the entire region affected by the project. In principle, the absolute and relative emissions footprints are not always directly comparable and should not be added or subtracted from one another. Page 12 of 56

15 Table 3: Carbon Footprinting of projects: boundary clarifications PROJECT TYPE FOOTPRINT BOUNDARY CLARIFICATION INCLUSION: scope 1 and 2 emissions for a typical year of operation. ALL PROJECTS, (OTHER THAN FOR THOSE EXCEPTIONS SPECIFIED BELOW) TRANSPORT NETWORKS ENERGY NETWORK PROJECTS INDUSTRIAL PRODUCTION FACILITIES ALL REHABILITATION / REFURBISHMENT PROJECTS EXCLUSION: scope 1 and 2 emissions associated with the commissioning, construction and decommissioning of the project. EXCLUSION: scope 3 emissions. INCLUSION: scope 3 emissions from 100% dedicated sources upstream or downstream that would not otherwise exist and a number of specific cases below. An example of the first case would be a power plant that exists solely to supply the project (upstream) or a waste disposal site that is for the exclusive use of the project (downstream) that would not otherwise exist. INCLUSION: scope 3 emissions from vehicles travelling on the financed physical infrastructure links, or fleets departing from, or arriving at a transport node, are included in the absolute and the relative emissions calculations. GHG relative emissions are calculated based on the displacement of passengers from one type of transport to another (modal shift effects), shifts in travel patterns (one road to another or from one time of day to another) and the induced increase in passengers / traffic. If the project includes the replacement of rolling stock, the savings in emissions from this intervention should also be taken into account. INCLUSION: scope 3 emissions from outside the boundary defined by the physical limits of the project are included in the relative emissions calculation where they are considered significant. For example, a district heating network project typically has a boundary that includes the losses of the heat network and any sources of heat generation under the control of the operator. If the project results in fuel switching (individual heating to district heating) or results in a change of the operational regime of a heat plant outside the control of the project operator, significant GHG emissions from these sources are included. INCLUSION: scope 3 emissions from outside the boundary defined by the physical limits of the project are included in the relative emissions calculation where they are considered significant. For example, the installation of a combined heat and power plant that provides waste heat to a residential area can lead to large GHG savings outside of the project boundary. If an industrial project leads to large energy or GHG emissions outside of the direct project, these should be included. EXCLUSION: The scope 3 emissions upstream and downstream of the industrial production is generally not considered (see exception above under All Projects covering 100% dedicated upstream and downstream sources). For example, the use of steel to make wind turbines or glass to double glaze windows would not be considered part of the absolute or relative emissions calculation. CLARIFICATION: The boundary for absolute emissions calculations for projects that rehabilitate or refurbish existing facilities corresponds to the boundary of the rehabilitation or refurbishment project and not the GHG emissions for the whole facility. If however the GHG emissions of the facility are significantly modified because of the project, the relative emissions calculation shall use a boundary that includes the entire facility. Example 1: The EIB invests in a project to rehabilitate a boiler house at a petrochemical refinery. The EIB reports the scope 1 and 2 emissions of the boiler house for the absolute and relative emissions. If GHG emissions of the rest of the refinery are not affected by the project, EIB does not report the GHG emissions for the whole refinery. Page 13 of 56

16 Example 2: The EIB invests in a project to replace 5% of a pipeline network. The EIB calculates the emissions associated with the project, i.e. losses for 5% of the network. The EIB does not report the whole network losses. Carbon leakage. Carbon leakage is not considered in the carbon footprint calculations. Leakage normally occurs as a result of climate policies of one country leading to a shift in emissions sources to another but may also occur as the result of a EIB financed project for example when an old technology is replaced and sold on to be used elsewhere (see Inclusion on industrial production facilities in Table 3). Rebound effects. Rebound effects in energy efficiency investments occur when additional energy is consumed because energy efficiency measures make the use of equipment cheaper. This can occur in households (e.g. no need to turn off energy saving lights, because they consume almost no energy anyway) or in industry. These potential effects are not included in the methodology. Page 14 of 56

17 Figure 1: Project scope all projects Scope 1 DIRECT GHG EMISSIONS Fuel combustion, process/activity, fugitive emissions PROJECT ACTIVITY Scope 2 INDIRECT GHG EMISSIONS Electricity/heating/cooling used by the operator of the infrastructure AS APPLICABLE Scope 3 INDIRECT GHG EMISSIONS Upstream/downstream scope 1 / 2 emissions from a facility 100% dedicated to the project activity that would not otherwise exist and did not exist prior to the project inception Indirect GHG emissions from vehicles or fleets using transport infrastructure including modal shift effects Indirect GHG emissions associated with energy network projects or industrial production facilities as described in table 3 Indirect GHG emissions for the production, processing and transport for biofuel and bioenergy projects (if applicable for determining climate mitigation eligibility) Page 15 of 56

18 8. Metrics 8.1 Emission Factors The EIB Carbon Footprint Methodology provides a series of emissions factors from which greenhouse gas emissions can be calculated. These have been derived from internationally recognised sources, e.g. WRI/WBCSD s GHG Protocol and IPCC Guidelines for National GHG Inventories. These default factors can be used where no other relevant factor is available or where factors that have been provided, by the promoter for example, appear to be unsubstantiated. Where possible, it is preferable to use project specific factors in place of the defaults given here provided the source of the factors used is consistent with the guiding principles described in section 4 of the methodologies. 8.2 Absolute emissions (Ab): A project s absolute emissions (gross emissions) will be quantified and included in the footprint if the emissions are greater than positive or negative 20,000 tonnes CO2e/year (as defined in section 5). Absolute emissions concern a project s emissions during a typical year of operation i.e. not including commissioning or unplanned shutdowns. The appraisal team calculates and reports the project s absolute emissions even though EIB is only contributing a part of the total financing plan. The absolute emissions should be calculated based on project-specific data. Where project-specific data is not available, it is good practice to use default factors based on sector specific activity data and through the application of documented emission factors. A compilation of default methodologies by sector is attached as Annex 1 to this note for guidance. Emissions will be estimated by multiplying activity data, such as the volume of fuel used or product produced, by a project-specific or an industry default emission factor. The default methodologies are separated into combustion emissions and those emissions arising from processes other than combustion, normally the result of a chemical reaction during a production process or because of a processing stream. Emissions may also be fugitive where a leak or vent of a GHG occurs from some part of the project installation such as a valve or transformer. A combination of methodologies can be used where appropriate. For example a project which has: onsite energy generation through fuel combustion e.g. generators, boilers or kilns and; uses purchased electricity from the national grid and; has an associated process type emission e.g. cement production may use a combination of Annex 1 methodologies to calculate absolute emissions for the project as follows: 1A Stationary fossil fuel combustion + 1E Purchased electricity + 6 Cement (clinker) production 8.3 Baseline emissions (Be): Measuring baseline emissions is a useful complement to absolute emissions. It provides a credible alternative scenario without the project, against which the with project scenario 3 can be compared giving an indication of how, measured in GHG metrics, the proposed project performs. However, the without project scenario, or baseline, is clearly theoretical and hence incorporates an additional level of uncertainty beyond those involved in estimating absolute emissions. The project baseline scenario (or without project scenario) is defined as the expected alternative means to meet the output supplied by the proposed project 4. 3 In this case, with project scenario is the expected emissions from the project. 4 In general, the baseline scenario is based on a combination of best available technology and least cost principles. In some circumstances, one could also assess alternative scenarios in which prices or regulatory requirements are used to determine options or constrain demand to existing supply. This is relevant where current pricing is clearly inefficient or when regulatory requirements impose specific conditions on all installations. Page 16 of 56

19 The baseline scenario must therefore propose the likely alternative to the proposed project which (i) in technical terms can meet required output; and (ii) is credible in terms of economic and regulatory requirements. 5 The first step is to propose a baseline scenario that meets demand in technical terms. Three examples expanded in detail below are: Example 1: a new conventional thermal power plant is introduced into an electricity network with zero demand growth; without the new plant, the existing power plants connected to the grid ( the operating margin ) would have continued to meet demand. By contrast, if demand is growing sharply, supply would have been provided in part by existing capacity and in part by alternative new generation capacity ( build margin ) and/or in part through a regional grid interconnection. Example 2: modernising a cement plant. Without the project, alternative regional plants both existing and new build or modernised would have met demand. In a second step, it is necessary to check that the proposed scenario is credible. The baseline scenario should meet three conditions: The socio-economic test: in general terms, the baseline scenario should show an economic rate of return above the social economic discount rate. 6 In the specific case that external costs are internalised through public policy (carbon tax; emissions trading scheme etc.) the financial rate of return of the baseline scenario should not differ significantly from the ERR; The legal requirement test: the baseline alternative could not fail to comply with binding legal requirements (either technology, safety or performance standards, including portfolio standards e.g. 10% biofuels in fuel mix); The life-expired asset test: the baseline alternative could not assume to continue using existing assets beyond their economic life (based on regular operations and maintenance) at least not without appropriate deterioration in quality of service. This baseline definition differs in general from an evaluation of emissions before and after the investment. By definition, emissions prior to developing on a greenfield site are zero. Hence, applying a simple before and after approach gives rise to a zero baseline. By contrast, the baseline scenario defined above, i.e. without project scenario, places no weight on whether development is greenfield, brownfield or partial replacement the key issue is how the projected demand could otherwise have been met, which is not addressed in the before and after scenario. If the project is designed to replace a life-expired asset, a before and after approach would use previous emissions as the baseline. However, this approach would lack credibility in many cases if, for example, the existing asset is life expired and could not have continued over the course of the asset life of the proposed project. 8.4 Relative emissions (Re) Relevant emissions concern a project s emissions from a typical year of operation i.e. not including commissioning or unplanned shutdowns. The appraisal team calculates and reports the project s relative emissions even though EIB is only contributing a part of the total financing plan. Relative emissions are defined simply as: 5 A baseline that is consistent with the best economic alternative is not necessarily identical to it. The best economic alternative is defined as the most competitive and viable alternative investment to which the project is compared; whereas the baseline for the carbon footprint is the most likely outcome in the absence of the project, e.g. meeting demand through a combination of existing and new infrastructure. The baseline is expected to include the best economic alternative as a component of the emissions calculation. 6 Note that ERRs are not always calculated, for example in case of asset renewal in rail/urban. Page 17 of 56

20 Relative Emissions = With Project Emissions (Wp) Without Project Emissions, or Baseline Emissions (Be) (Re = Wp Be) The with project emissions must have the same boundary as the without project emissions in terms of scope, but can differ from the boundary used for absolute emissions, because the boundary is sometimes extended for relative emissions, e.g. in the case of networks (see boundary conditions in section 7 of the methodology above). Relative emissions may be positive or negative: where negative, the project is expected to result in a savings in GHG emissions relative to the baseline and vice versa (subject to the general caveats surrounding the carbon footprint methodologies). Expressing a project s relative carbon footprint is one way of evaluating the impact of a project in emissions terms since it provides a context to the absolute emissions of the project, i.e. whether the project reduces or increases GHG emissions overall. This can then be used as an indicator, along with others, of the environmental performance of the project. The examples below present the approach the EIB typically takes for carbon footprinting in three sectors: energy, industry and transport. All projects use an average year of operation during the economic lifespan of the project. Example 1: A New Combined-cycle natural gas-fired (CCGT) power plant in Austria Absolute emissions The new CCGT plant is expected to generate approximately 5,000 GWh per annum. The resulting CO2 emissions are estimated to be kg/kwh, based on plant efficiency of 57% and the default emission factor for natural gas 56,155 kg CO2e/TJ. Therefore the absolute emissions are: Ab = (5,000* 0.353) * 1,000 = 1,765,000 tons CO 2e/year Baseline emissions Austrian energy demand growth is less than 5%, meaning that part of the energy generation from the project will in part replace less efficient firm 7 generation in the grid (the operating margin) and in part meet the demand growth (build margin). In cases where demand growth is less than 5%, 50% of the baseline will be represented by generation from existing power plants (operating margin) and 50% from alternative new power plants (build margin), where in mainland Europe the build margin is assumed to be gas-fired CCGT plant. The weighted average emission factor is derived from these two: Operating Margin = kg CO2/kWh Build Margin = kg CO2/kWh Weighted average = kg CO2/kWh Therefore: Be = (5,000 * 0.429) * 1,000 = 2,145,000 tons CO 2e/year Relative emissions In this example, the with project, emissions are equivalent to the calculation of absolute emissions, therefore: Re = 1,765,000 2,145,000 = Minus 380,000 tons CO 2e/year Overall, the project, compared to the baseline scenario is expected to result in a reduction in emissions of 380,000 tons CO 2 per annum due to the displacement of less efficient firm generation that is currently produced in the Austrian grid. 7 Firm generation is the energy or the generation capacity which can be guaranteed to be available upon demand at a given time, i.e. not subject to variability outside the control of the operator. Page 18 of 56

21 Example 2: Modernisation of a Cement Plant in Italy Absolute emissions The cement plant substitutes in part clinker with slag from a nearby steel plant. The plant produces 1,200,000 tons of cement using 800,000 tons of clinker. The conversion factor for clinker production is 0.83 kg CO2e/t clinker. The plant also purchases electricity at 40 kwh/t cement produced converted to CO2e using the Italian grid average of kg CO2/kWh. Ab = (800,000 * 0.83) + (40 * 1.2 * * 1,000) = 682,000 tons CO 2e/year Baseline emissions Cement markets are predominantly regional, so the baseline reflects how cement production would be met using local plants. Assuming a ton of cement produced locally requires tons of clinker, for the same amount of clinker (800,000 tons), regional cement plants would be able to produce 900,000 tons of cement. The additional 300,000 tons of cement needed to meet the production level of the project would require an additional 267,000 tons of clinker. The total clinker used in the baseline is therefore 1,067,000 tons. Purchased electricity is 50 kwh/t cement produced. Be = (1,067,000 *0.83) + (50 * 1.2 * * 1000) = 908,110 tons CO 2e/year Relative emissions Re = 682, ,110 = Minus 226,110 tons CO 2e/year Overall, the project, compared to the baseline scenario is expected to result in a reduction in emissions of 226,110 tons CO2e/year. This is due to the part replacement of high CO2 emitting clinker with slag from a neighbouring steel plant. Example 3: Rehabilitation of a Railway Line For rail infrastructure projects, the forecast for carbon footprint is undertaken whenever a cost benefit analysis (CBA) is prepared. The CBA for such projects is normally performed using the Bank's proprietary excel based model, RAILMOD. Absolute emissions The project concerns the modernization of an existing twin track line for about 140 km. The line usage at opening is forecast to be about 60 electric powered trains per day. The absolute emissions are calculated from a multiplication of the assumed power consumption, in this case 10.5 kwh per train km, the assumed grid emission factor of 655 g per kwh, the total train km per year and the assumed growth in train km over time, including for demand induction as a result of the project (EIB Services assumption based on national plans). The absolute forecast based on these inputs comes to 21,000 tons per average operating year. Baseline emissions The usage of the line without modernization is about 56 electric powered trains per day. Using the assumptions above for the emissions calculation (10.5 kwh per train km and grid factor of 655 gco2/kwh), the emissions for the existing twin track of 140 km is estimated to be 19,600 tons per average operating year. The opening year passenger demand is assumed to come from two sources: (i) diverted from existing modes, namely the existing rail service as well as the main competitors here, private cars and buses and (ii) induced rail trips. In this example, the vast majority of opening year passenger traffic is forecast to be diverted from existing rail. A portion is also diverted from buses (4%) and cars (4%) and a portion is induced (about 10% on average). The passenger demand diverted from other modes is captured in the baseline emissions (i.e. in the baseline, a portion of traffic is assumed to be travelling by car/bus at a higher emission rate per passenger km). Page 19 of 56

22 The baseline forecast comes to 25,000 tonnes per average operating year. Relative emissions In this example, the with project emissions are equivalent to the calculation of absolute emissions, therefore: Re = 21,000 25,000 = Minus 4,000 tons CO 2e/year Page 20 of 56

23 9. Quantification process and methodologies Figure 3 illustrates the overall series of activities to quantify the EIB carbon footprint for investment projects and the associated relative emissions compared to the baseline. Figure 3: Project carbon footprint calculation flow DEFINE PROJECT BOUNDARY EMISSION SCOPES TO INCLUDE (SEE SECTION 7 & FIGURE 1) QUANTIFY ABSOLUTE (Ab) PROJECT EMISSIONS See ANNEX 1 IDENTIFY & QUANTIFY BASELINE (Be) EMISSIONS CALCULATE RELATIVE (Re) EMISSIONS Re = Wp - Be NB If a project s absolute emissions or its relative emissions variation from the baseline scenario reach the thresholds shown, it is included in the EIB Carbon Footprint. If is below this threshold, it is not included: + or (-) 20,000 tonnes CO2e/year ABSOLUTE threshold for inclusion + or (-) 20,000 tonnes CO2e/year RELATIVE threshold for inclusion Page 21 of 56

24 9.1 The assessment of intermediated projects The quantification of the carbon footprint for multi-investment intermediated projects (e.g. Multibeneficiary intermediated loans, Framework Loans, Global Loans, Equity and Debt Funds) poses challenges. Information on the large number of sub-projects financed under these operations is highly limited, which does not permit a reasonable assessment of the GHG emissions from the sub-projects, especially smaller ones and those targeting SMEs. Intermediated lending through these types of vehicles is not currently included in the carbon footprint, except for large allocations of Framework Loans that are subject to individual appraisal and submission to the Board. These should be treated as Investment Loans and included in the footprint if emissions are above the thresholds, in the year the allocation is approved by the Bank. Page 22 of 56

25 ANNEX 1: DEFAULT EMISSIONS CALCULATION METHODOLOGIES Method # Sector & GHG Calculation Input Data Requirements (i) (ii) etc. Calculation Method 1A Stationary fossil fuel combustion CO 2e (i) (ii) Annual fuel use in energy units (e.g. TJ), volume or mass units Default emission factor (see table A1.1) CO 2e (t) = Fuel energy use * Emissions Factor 1B Stationary fossil fuel combustion N 2O (i) (ii) Annual fuel energy input (derive from data above) Default emission factor (see table A1.1) N 2O (t) = Fuel energy input * emission factor 1C Stationary biomass fuel combustion CH 4 and N 2O (i) (ii) Fuel energy input (derive from data above) Default emission factors (CH 4 and N 2O expressed as CO 2e): Energy/Manufacturing - Gaseous - Liquid - Solid - Municipal waste - Unknown t CO 2e/TJ CH 4 (t) = Fuel energy input * emission factor N 2O (t) = Fuel energy input * emission factor Conversion factors to convert to CO 2e see table A1.9 Commercial/Residential - Gaseous - Liquid - Solid - Municipal waste - Unknown (iii) Process emissions for biomass fuel production, including where significant: Fertilisers for purpose grown energy crops (N 2O); drying, torrefaction and peletising of solid biomass (CO 2), and long-distance transportation (CO 2); factors on a case by case basis 1D Cogeneration Combined Heat and Power (CHP) CO 2e Direct emissions from fuel combustion to follow methodology 1A and 1C, as applicable, above. Allocation of emissions from the purchase or sale of energy from a CHP plant to be made according to the Efficiency Method of the relevant GHG Protocol Allocation of Emissions from a Combined Heat and Power (CHP) Plant (i) (ii) Baseline for heat production assumes individual heat boilers Baseline for electricity production assumes purchase of electricity from the grid, auto-generation, or alternative generation injected into the grid (see electricity generation baseline assumptions Annex 2). Page 23 of 56

26 Method # Sector & GHG Calculation Input Data Requirements (i) (ii) etc. Calculation Method 1E Purchased electricity CO 2e (i) (ii) Energy Purchased for use in project activities Country specific emissions factor (see table A1.3) for electricity consumption or in special cases, such as electricity for pumped storage, the appropriate combination of marginal plants. CO 2 (t) = Energy use * Country Specific Emissions Factor for Electricity Consumption 1F Renewable energy CO 2e (i) (ii) Zero or minor absolute emissions except for hydropower with large reservoir storage capacity (see hydro reservoir emissions table A1.8). Renewable energy is assumed to displace (at least in part) fossil fuels (see electricity generation baseline assumptions Annex 2). CO 2 (t) = Energy generated * Country Specific Emissions Factor for Electricity Combined Margin 1G Stationary combustion of waste type fuels CO 2e (i) (ii) (iii) Annual fuel use Default emission factor (see table A1.1) Zero or minor absolute emissions for organic portion of waste fuels. CO 2 (t) = Fuel use * Fuel Emissions Factor 2 Oil/gas production, processing, storage and transport CO 2, CH 4 All combustion including flare emissions may be derived from 1a above. Emissions of N 2O are not considered significant in petroleum refining and gas processing (IPIECA GHG Guidelines, 2003). Compressor emissions are calculated from fuel combustion as above or from purchased energy. Fugitive emissions Fugitive emissions are leaks from components such as pipe connections, valves, rotating shafts etc. The calculation of fugitive emissions is insensitive to the number of components and the benefit to be derived from identifying the precise number of components is negligible. A coarse estimate of component numbers, focusing on large potential sources such as compressors, is recommended Fugitive emissions and venting t CO 2/yr = Volume or mass of ref. gas * Emissions Factor ref. gas Fugitive CH 4= emissions factor * production (i) Facility production of transport system flow rates (ii) Emissions factor (see tables A1.2) (iii) API compendium lists a default approach as being to assume that storage tank working and breathing loss emissions are negligible for CO 2 and CH 4. Storage tank fugitive emissions (i) API compendium lists a default approach as being to assume that tank working and breathing loss emissions are negligible for CO 2 and CH 4. Cat Regen kg CO 2= throughput kwh x Catalytic Regeneration (i) (ii) Rated throughput of the unit Benchmark energy consumption for the unit from and verified feed or product Hydrogen Gen. CO 2 (t) = Hydrogen feed x 2.19 Page 24 of 56